Monday, May 16, 2011

Investor quality financial model - what does it take?

Over the years I’ve seen financial models from the worst to the best, and don’t feel comfortable building anything but the most finely tuned, high performance model possible. When looking at some past models I’ve built compared to other models I’ve seen, you can compare the quality to that of a finely tuned super car compared to a mass produced daily commuter car. It may be hard to believe, but once you experience having the best, you won’t know how you survived thus far without having a quality model.

What are a few differences?

1. Lack of central assumptions - embedding assumptions throughout multiple spreadsheets is a rookie move I see often. Makes the model NOT a model, just a complex spreadsheet.

2. Financials that don't tie. You have to uphold the basics of accounting, ie. a balance sheet that balances is a great start.

3. Unrealistic numbers. Expecting $20M in year one sales on a shoestring budget doesn't ring true, regardless of what industry you are in.

4. Lack of valuation/capitalization. Often times financial models show the end game, but you have all the tools in place to also compute if anything a rough valuation & capitalization structure. Show people you know what you are doing.

5. A forecast for no purpose other than to showcase investors. Ultimately the forecast is what you will live by, make sure it reflects reality. It's your benchmark investors will expect you to live up to.

If you want to impress investors and have a tool in house that outperforms anything you’ve seen elsewhere, send me an email. I’m looking to help those exciting, growing startups with passionate entrepreneurs at the helm. Invest in your business and it pays off in the long run.

Chris Benjamin,
Rogue CFO
chrisb@roguecfo.com
www.RogueCFO.com

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